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Why 60% of SMEs give high street banks a wide berth

Since the financial crash of 2008, banks have become increasingly cautious about lending, and have introduced more stringent criteria and far more onerous application processes. As a result, many small businesses now avoid banks as a source of finance – according to research commissioned by Advanced Payment Solutions (APS) the figure is as high as 60%.

Those who do apply can expect a long wait, with an average of 16 days from application to approval. Nearly one in six SMEs had to wait more than 26 days before their business bank account was available for use, and a mere 6% gained access on the day they applied. Given these alarming statistics, it’s hardly surprising that a third of SMEs agreed with the statement “dealing with bank red tape makes operating a business a laborious task”. At the same time, almost 40% agreed that dealing with a bank was a “necessary evil of operating a business”.

Charges can be onerous

However, banks’ relaxed timescales are only part of the problem. The APS survey also found that high bank charges act as a deterrent, with an average annual fee of £468 to operate a business account. More worryingly, 31% of respondents believed their banks actively sought ways to penalise them with fees and fines in order to boost this total. Almost one in six considered their bank’s charging structure to be so complicated that they had no idea what they would be billed from month to month.

The banks that like to say no

The picture was no rosier when it came to securing overdrafts and loans. Fewer than a quarter of small business owners and self-employed people said they had been granted the full amount of credit requested from their bank, and fewer than half agreed that their overdraft facility was “fully meeting their business’s needs”.

APS’s founder and CEO Rich Wagner commented, “It’s worrying to see that UK SMEs are finding it so difficult to gain access to a basic high street business bank account. The laborious checks and paperwork that SMEs must endure are an unnecessary hurdle, and has more to do with banks ensuring that their new small business customers will be profitable for them than as a risk assessment tool. This highlights that banks are not always best placed to serve the needs of their smallest business customers.

“There is no getting around the fact that you have to have a bank account to make and receive business payments. It is likely that a good proportion of the 65% who say they do not hold a traditional bank account have been declined and are therefore being forced to rely on risky alternatives such as cash or personal bank accounts, putting their own credit scores on the line for the sake of their business. SMEs and self-employed workers would be wise to look beyond traditional banks to find alternatives that can meet their unique requirements and help them to run their business as smoothly and profitably as possible.”

Where banks can’t help, alternative lenders often can

Although a bank account is a must for most businesses, no company is compelled to borrow from banks. Alternative lenders have different criteria and can reach much faster decisions – less than 24 hours from application to payment in the case of an emergency business loan.

Other solutions include asset-based finance, whereby businesses borrow against the value of their existing premises, plant and equipment, and invoice factoring and discounting, where up to 85% of the value of invoices can be borrowed as soon as they’re issued. This means that you can say goodbye to the frustrations and delays so often caused by banks – and say hello to the funding you need, when you need it.

To discover how Cashsolv can help, please visit our business loans page.

By Carl Faulds | 16th November 2015

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